Plus: U.S. Factory Output Rebounds and Leading Economic Indicators Rise.

U.S. Factory Output Rebounds in May
Factories in the United States produced more goods in May, making up for production lost in April because of supply disruptions caused by the Japan crises and tornadoes in the southern U.S., according to the U.S. Federal Reserve last week.

Despite a 1.5 percent drop in auto production, factory production increased 0.4 percent in May. This followed a 0.5 percent decline in April. Excluding motor vehicles and parts, manufacturing output advanced 0.6 percent last month. Output of business equipment and construction goods both increased more than 1 percent, offsetting the second straight decline in automotive production.

However, overall industrial production remained flat for the second consecutive month, edging up just 0.1 percent in May. While the output of mines increased 0.5 percent in May, the output of utilities fell 2.8 percent. Economists projected a 0.2 percent gain in industrial production, according to the median estimate in a Bloomberg News survey.

Nevertheless, total industrial production in May was 3.4 percent above its prior-year level.

“The May industrial production report conveys good news about manufacturing activity and should quiet the cacophony of Chicken Littles who mistook the April decline in production (due to the Japanese tsunami impact on autos and electronic and Mississippi flooding) as a sign that a ‘recession was coming,” Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI, wrote in an analysis of the Fed report. “It is clear that supply chain problems emanating from Japan are still an issue, motor vehicle production fell again in May, but overall manufacturing is robust.”

Capacity utilization, which measures the amount of a plant that is in use, was flat at 76.7 percent last month.

U.S. Manufacturing Industrial Production to Grow through 2012
Despite overall economic sluggishness, the American manufacturing sector is set to grow in 2011 and 2012, according to the Manufacturers Alliance/MAPI’s latest quarterly U.S. Industrial Outlook.

The report, released last week, reveals that manufacturing industrial production grew at a 7 percent annual rate in the first quarter of 2011, up from a 3.4 percent annual growth rate in the fourth quarter of 2010. Of the 27 industries MAPI monitors, 18 showed inflation-adjusted new orders or production above the level of last year, two showed growth over the previous quarter and four were flat.

Based on current figures, MAPI sees manufacturing production increasing 6 percent this year and 4 percent next year. Production in non-high-tech manufacturing, which expanded at a 5.7 percent annual rate in Q1 2011, is expected to increase 5 percent in 2011 and 4 percent in 2012. High-tech industrial production, which rose at a 21 percent annual rate in Q1, is forecast to grow 15 percent in 2011 and 13 percent in 2012.

MAPI forecasts growth in 21 industries this year — led by mining and oil and gas field machinery, and industrial machinery, each with expected 26 percent growth — and in 23 industries next year — led by housing starts at 61 percent, albeit from depressed levels, and communications equipment at 16 percent.

Leading Economic Indicators Up in May
The Conference Board’s Leading Economic Index (LEI) for the U.S. grew an unexpected 0.8 percent in May, following a revised 0.4 percent drop in April and a 0.7 percent increase in March. Economists surveyed by MarketWatch had forecast a 0.5 percent increase in May.

“The Coincident Economic Index, a monthly measure of current economic conditions, continued to increase slowly but steadily,” Ataman Ozyildirim, a Conference Board economist, said in an announcement of the findings. “Overall, despite short-term volatility, the composite indexes still point to expanding economic activity in the coming months.”

The LEI index is a weighted gauge consisting of 10 components that reflect both business cycle peaks and troughs. Contributors to the increase in May included interest rate spread, consumer expectations and housing permits, according to the latest Conference Board figures.

“Modest economic growth is being buffeted by some strong headwinds, including high gas and food prices and a soft housing market,” according to Conference Board economist Ken Goldstein. “The economy will likely continue to grow through the summer and fall, however it will be choppy.”